Can you Succeed in the Bottom Right Corner?

By Anonymous

Emerging Economy, Greenfield Situation, Chaotic Governance, Entrepreneur

Emerging Economy, Greenfield Situation, Chaotic Governance, Entrepreneur

The matrix proposed by Prof. Macomber titled “How to Invest in Sustainable, Competitive Cities” points to the bottom right cell as one with the greatest potential opportunity. At a first glance this “opportunity” does not make sense: Who would want to be an entrepreneur investing in greenfield developments in regions with chaotic governance?  However, while thinking about this framework in the context of bringing order to chaotic situations with a lot of activity, one extremely successful business comes to mind. It does not erect the kind of barriers to entry that most HBS MBA students think about. Continue reading

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How can we best talk about people in a finance course?

By John Macomber

A student wrote to me offline with the observation I’ve paraphrased below. My email reply follows below that. I’d be interested in thoughts on how to expand an infrastructure finance course from “develop property” into “develop human beings” while continuing to exercise a finance, investment, entrepreneurship, and big business toolkit.

This passionate pain point (sorry about the PPP again ) is a good angle for final essays on the blog (should you be looking for a topic later today).

To me this conversation also underscores the potential learning value of this experimental blog in drawing out points of view or lines of reasoning that didn’t get expressed in class (for any number of reasons). Other recent posts expanding on what was not said in class include but are not limited to:

Continue reading

On Density, Desirability, and Happiness

By MRP

High density is often praised in relationship to sustainability because of the efficiencies in managing resources and benefits regarding shared transportation. Economists have also concluded that workers in denser places earn higher wages and are more productive. Studies show that doubling the density increases productivity by 6% or more. And there is an interesting 25% correlation between population density and gross metropolitan product per capita. (1) (2)

However, density is not a magic elixir. Many developing cities are struggling with overcrowding, traffic congestion, providing adequate infrastructure for water access and sanitation. In the case of Dharavi, we were looking at a slum redevelopment that would result in a population density of about 313,900 ppl/km2. The final image visualizing the massing of the proposed design, based on the 7 story’s maximum height policy, offered a terrifying view of the future – not that different from the Soviet housing projects developed during the 60s, many of which are now abandoned or soon to be demolished.

So, I wanted to explore if there is such thing as an “ideal” density. In other words, is there a correlation between the density and the perceived desirability of the city? How does it change with economical and growth differences?

If we look at the rankings of the “most livable cities” (3) and their density we can observe the following correlation:

Roure density

Cities that systematically appear on the rankings of “livability” are: Zurich, Helsinki, Copenhagen, Vienna, Munich, Melbourne, Sydney, Auckland, Paris… In this study I included the 20 most acclaimed cities amongst the 3 most important rankings: Monocle, Mercer, and EIU. The average density of these 20 cities is of 3800 ppl/km2 and the deviation can be disregarded.

Although there is much debate about the criteria behind these reports, they have to do with very high ratings on safety/crime, quality of architecture, public transportation, urban design, business conditions, environmental issues and pro-active policy developments.

On the other hand, all of the cities in this list are in stable, democratic countries, have gone through a diligent constant improvement over the last, not only decades, but also centuries, and stand today with some of the highest gross metropolitan product per capita of the world. These could be thought as the most desirable cities for the top 5% of the population.

The challenge arises when addressing emerging citites such as Mumbai, Bangalore, Beijing, Shanghai, Chongqing, New Delhi or Bogota (4), with densities from 3 to 10 times higher than the “ideal” 3800ppl/km2. Slums in these cities have a key socioeconomic role, they are often used as a gate for immigrants coming from rural areas to find a temporary settlement and to eventually be able to find a job and thus enter the formal market. The precarious living conditions, sanitation deficiencies and corrupted informal economies are a source of anxiety.

If we think back on the history of some of the chosen “most livable cities,” we find a recurrent pattern of explosion of growth with subsequent stabilization. Yet the scale of these new metropolis and building capabilities are unprecedented. Even if we can greatly learn from existing urban models, new challenges will need to be addressed – for which testing and a great degree of political will be needed.

(1) http://economix.blogs.nytimes.com/2010/04/13/why-humanity-loves-and-needs-cities/

(2) http://www.nytimes.com/2011/09/04/opinion/sunday/one-path-to-better-jobs-more-density-in-cities.html?pagewanted=all

(3) http://en.wikipedia.org/wiki/World’s_most_livable_cities links to Monocle, Mercer and EIU

(4) http://www.atkearney.com/documents/10192/dfedfc4c-8a62-4162-90e5-2a3f14f0da3a  Global Cities Index and Emerging Cities Outlook

 

Why do we drive smart cars but live in dumb homes?

By Jan Dolezal

Cars were very simple thirty years ago, but today an average passenger car contains about 100 microprocessors and 5 miles of wiring. Electronics accounts for about a third of the car cost. Customers are happy to pay that, because they know car intelligence increases safety, comfort and performance while reducing operating costs. But look at your home – it is almost as primitive as homes used to be some three decades ago. Building intelligence could also significantly improve safety, comfort and performance of homes. We spend more time in buildings than in cars so why on Earth do we live in such dumb houses?

We have all the required technology to build smart HVAC systems that reduce temperature when you are not at home and restore it automatically before your arrival, run non-critical appliances in energy off-peaks or automatically control angle of window shades to assist with passive heating and cooling. But a combination of factors has prevented the same smartening revolution that transformed the automotive industry occur in the construction industry.

  • Developing countries are still struggling with sufficient housing quantity and wait for innovation to come from developed countries. However unlike mass-produced cars, majority of houses in developed countries are unique and designing smart systems for individual installations is uneconomical.
  • Building automation is either expensive or unreliable. Bringing together all the smart components into a system is very costly in individual installations due to lots of professional human labor involved. Do-it-yourself wireless systems are cheap, but often fail the same way a DYI car is likely to face problems.
  • The construction cycle for buildings is longer than for cars and therefore innovation slower. Developers don’t possess smart house expertise required to include smart systems cheaply during construction and retrofitting later is expensive.
  • Even though buildings consume more energy and produce more emissions than cars, there is lack of regulations. While there are stringent requirements for car emissions, there are currently no mandatory requirements for energy consumption of residential buildings and very few requirements for commercial buildings.
  • There are split-incentives. For rental properties, the additional fixed investment is borne by owner, but benefits reaped by tenants. Demand response of a house benefits the whole energy sector, but benefits are seldom passed on the owner. Unlike heavily taxed gasoline, electricity, water and gas are often subsidized providing even less incentives for a smart house to conserve them.

Widespread use of smart houses might actually start in China where the government needs to efficiently develop new smart cities for urban migrants and at the same time has to find ways to reduce consumption of energy and other resources, because of current severe environmental situation. The scale of Chinese build-out might produce standardized cheap smart house systems to be widely adopted in other countries. Adoption will be aided by increase of modular prefabricated construction and regulations such as the EU mandate to have all new buildings nearly zero net energy by 2020.

Dolezal Carbon

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What should we strive to achieve in housing the poor?

By Landon Dickey

In developing countries, the aspirational objectives of housing seem clear. As in the case of Dharavi, individuals trapped in cramped living conditions with scarce clean water and hygienic facilities need their basic needs met first and foremost. But what should be the objectives of housing for the poor in a developed country like the United States? Since the 1930s there have been many efforts to house the poor—from public housing, to Section 8 vouchers, to relocation of low-income residents to more affluent areas[1]—and these efforts have done just that; they have housed the poor. That, however, should not be the final objective of low-income housing.

Government should view the objectives of housing the poor as threefold (ranked in order of importance):

  1. Enhancing the economic opportunities of lower-income individuals
  2. Creating more cohesive and responsible communities
  3. Furthering the social and economic integration of lower-income individuals with higher-income individuals

This contrasts with what I see as the main objectives of low-income housing in the United States now, specifically providing a safety net that keeps individuals off the streets and maintaining a degree of order in communities with economically disadvantaged citizens. Really, housing should be viewed as the first rung on a ladder of opportunity for citizens. In particular, ownership of property provides individuals collateral with which to secure loans for entrepreneurial endeavors, an asset to sell or lease, or simply a source of intergenerational wealth.

Several steps would need to be taken to realize the view of housing as a platform to wealth. A committee would need to be formed consisting of housing and economic development experts. As a starting point, this committee’s scope should first be limited to a single city and it should stand separate from a single politician’s office. This committee should be tasked with the dual mission of 1) transitioning tenants to owners of public housing units and  2) enhancing property values by stimulating economic activity in low-income neighborhoods.

Tactically, in order to achieve the first goal, the committee should solicit applications from current tenants interested in owning their unit. If selected, the objective of the committee would be to help quantify tenants’ earnings and counsel them in saving money towards purchasing a unit at a heavily subsidized price.[2] It is important that tenants pay some price for the unit in order to encourage them to personally value the property and incent them to serve as leaders in maintaining the public housing building as a whole (which affects the financial value of their individual unit). The committee could turn the first class of applicants  into a taskforce for the public housing building, encouraging them to create a housing oversight board with responsibility for recruiting more tenants as candidates for ownership and maintaining the building and surrounding land.

Simultaneously, the committee should work to identify the skills of community members and create opportunities for economic activity. The “Art Murmur” event in Oakland, California provides a model for local economic activity. At this monthly event, local artists and vendors come together to share their art and cuisine to Oakland and San Francisco residents in a developing neighborhood in Oakland. Nationally, other low-income neighborhoods could hold similar events or low-income entrepreneurs could pool income with their neighbors to create permanent and unique staples of economic activity (i.e. food trucks, performance theaters, museums). Unique cultural institutions have the potential to promote patronage from a broader economic class and incrementally increase land values.


[1] Hoffman, Alexander. “High Ambitions: The Past and Future of American Low-Income Housing Policy.” Housing Policy Debate, Volume 7, Issue 3.

[2] Harlem Children’s Zone. “Community Pride: Community Pride is a Meeting Place.” A Look Inside, Volume 2, Number 1, available at <http://www.hcz.org/images/stories/pdfs/ali_spring2003.pdf&gt;